|
9. |
INCOME TAXES: |
Income (loss) before income tax benefit is as follows:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
United States |
|
$ |
(197,136 |
) |
|
$ |
134,959 |
|
|
$ |
(3,249,590 |
) |
|
Foreign |
|
|
360,982 |
|
|
|
(79,462 |
) |
|
|
37,966 |
|
|
Total |
|
$ |
163,846 |
|
|
$ |
55,497 |
|
|
$ |
(3,211,624 |
) |
The consolidated income tax (benefit) provision is comprised of the following:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Current tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. federal, state and local |
|
$ |
(13,296 |
) |
|
$ |
(72 |
) |
|
$ |
— |
|
|
Foreign |
|
|
2 |
|
|
|
(583 |
) |
|
|
(3,414 |
) |
|
Total current tax (benefit) |
|
|
(13,294 |
) |
|
|
(655 |
) |
|
|
(3,414 |
) |
|
Deferred tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
— |
|
|
|
1 |
|
|
|
(990 |
) |
|
Total deferred tax (benefit) expense |
|
|
— |
|
|
|
1 |
|
|
|
(990 |
) |
|
Total income tax (benefit) |
|
$ |
(13,294 |
) |
|
$ |
(654 |
) |
|
$ |
(4,404 |
) |
The income tax provision (benefit) from continuing operations differs from the amount that would be computed by applying the U.S. federal income tax rate of 35% to pretax income as a result of the following:
|
|
|
Year Ended December 31, |
|
|||||||||
|
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|||
|
Income tax provision (benefit) computed at the U.S. statutory rate |
|
$ |
57,346 |
|
|
$ |
19,424 |
|
|
$ |
(1,124,069 |
) |
|
State income tax (benefit) provision net of federal effect |
|
|
(25,519 |
) |
|
|
(2,335 |
) |
|
|
(12,998 |
) |
|
Valuation allowance |
|
|
(562,491 |
) |
|
|
(31,083 |
) |
|
|
1,147,619 |
|
|
Tax effect of rate change |
|
|
463,113 |
|
|
|
— |
|
|
|
12,898 |
|
|
Sale of Pennsylvania assets |
|
|
130,552 |
|
|
|
— |
|
|
|
0 |
|
|
Foreign rate differential |
|
|
(3,150 |
) |
|
|
17,388 |
|
|
|
(26,740 |
) |
|
Reorganization items |
|
|
(78,549 |
) |
|
|
— |
|
|
|
— |
|
|
Other, net |
|
|
5,404 |
|
|
|
(4,048 |
) |
|
|
(1,114 |
) |
|
Total income tax (benefit) |
|
$ |
(13,294 |
) |
|
$ |
(654 |
) |
|
$ |
(4,404 |
) |
The tax effects of temporary differences that give rise to significant components of the Company’s deferred tax assets and liabilities are as follows:
|
|
|
December 31, |
|
|||||
|
|
|
2017 |
|
|
2016 |
|
||
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
|
Property and equipment |
|
|
181,524 |
|
|
|
603,045 |
|
|
Deferred gain |
|
|
22,256 |
|
|
|
40,867 |
|
|
U.S. federal tax credit carryforwards |
|
|
987 |
|
|
|
15,967 |
|
|
U.S. net operating loss carryforwards |
|
|
450,623 |
|
|
|
428,212 |
|
|
U.S. state net operating loss carryforwards |
|
|
4,038 |
|
|
|
71,323 |
|
|
Non-U.S. net operating loss carryforwards |
|
|
6,556 |
|
|
|
30,211 |
|
|
Asset retirement obligations |
|
|
36,624 |
|
|
|
55,700 |
|
|
Liabilities subject to compromise-contract settlement |
|
|
— |
|
|
|
59,166 |
|
|
Incentive compensation/other, net |
|
|
8,308 |
|
|
|
16,088 |
|
|
|
|
|
710,916 |
|
|
|
1,320,579 |
|
|
Valuation allowance |
|
|
(707,348 |
) |
|
|
(1,270,935 |
) |
|
Net deferred tax assets |
|
$ |
3,568 |
|
|
$ |
49,644 |
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
|
Derivative instruments, net |
|
|
3,568 |
|
|
|
— |
|
|
Liabilities subject to compromise-interest |
|
|
— |
|
|
|
35,498 |
|
|
Liabilities subject to compromise-interest (non-U.S.) |
|
|
— |
|
|
|
14,146 |
|
|
Other — non-US |
|
|
— |
|
|
|
— |
|
|
Net tax liabilities |
|
$ |
3,568 |
|
|
$ |
49,644 |
|
|
Net tax asset |
|
$ |
— |
|
|
$ |
— |
|
In assessing the realizability of the deferred tax assets, management considers whether it is more likely than not that some or all of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which the temporary differences become deductible or before the attributes expire unused. Among other items, management considers the scheduled reversal of deferred tax liabilities, historical taxable income, projected future taxable income, and available tax planning strategies.
At December 31, 2017 and 2016, the Company recorded a valuation allowance against certain deferred tax assets of $0.7 billion and $1.3 billion, respectively. Some or all of this valuation allowance may be reversed in future periods if future taxable income of the appropriate character is available to recognize certain deferred tax assets.
The Company has a U.S. federal tax net operating loss carryforward of $2.1 billion which will be carried forward to offset taxable income generated in future years, and if unutilized, will expire between 2033 and 2037. The Company has Utah state tax net operating loss carry forwards of $102.2 million which will expire between 2033 and 2037. The Company has immaterial Canadian Federal and Provincial and U.S. State tax net operating loss carry forwards in which minimal or no oil and gas operations exist. The ownership change that occurred as a result of the Company’s chapter 11 restructuring did not significantly impair the ability to utilize the net operating loss carryforwards to offset future taxable income. Without regard to the recorded valuation allowance, if the Company experiences an additional ownership change as determined under Section 382 of the Internal Revenue Code, our ability to utilize our substantial net operating loss carryforwards and other tax attributes may be limited, if we can use them at all.
The Company did not have any unrecognized tax benefits and there was no effect on our financial condition or results of operations related to accounting for uncertain tax positions. The amount of unrecognized tax benefits did not change as of December 31, 2017.
Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits are classified as a component of tax expense in the Consolidated Statements of Operations. The Company has not incurred any interest or penalties associated with unrecognized tax benefits.
The Company files a consolidated federal income tax return in the United States federal jurisdiction and various combined, consolidated, unitary, and separate filings in several states, and international jurisdictions. With certain exceptions, the income tax years 2014 through 2017 remain open to examination by the major taxing jurisdictions in which the Company has business activity. The Company has been notified that Canada intends to audit tax years 2015 and 2016. Management does not expect the results of the audit to materially impact the Company’s financial statements.
The undistributed earnings of the Company’s U.S. subsidiaries are considered to be indefinitely invested outside of Canada. It is not practical to estimate the amount of unrecognized deferred tax liability related to undistributed foreign earnings at this time. No provision for Canadian income taxes and/or withholding taxes has been provided thereon.
On December 22, 2017, the Tax Cuts and Jobs Act (“TCJA”) was enacted into law. The new legislation decreases the U.S. corporate federal income tax rate from 35% to 21% effective January 1, 2018. The Company does not expect any impact on recorded deferred tax balances as the re-measurement of net deferred tax assets will be offset by a change in the valuation allowance. The Act also includes a number of other provisions including the elimination of loss carrybacks and limitations on the use of future losses, repeal of the Alternative Minimum Tax regime, the limitation on the deductibility of certain expenses, including interest expense, and changes in the way capital costs are recovered. These provisions are not expected to have an immediate effect on the Company. TCJA did not make significant changes to the Company’s ability to deduct intangible development costs or depletion. The Company’s significant net operating loss carryforwards generated in 2017 and before are grandfathered under the provisions of TCJA and should not be subject to the limitations imposed by the act. Further, the elimination of the Alternative Minimum Tax is beneficial because it allows the Company to recover its AMT credit carryforwards in 2018 through 2021. The amount of this expected benefit has been recorded in the financial statements as of and for the year ended December 31, 2017.
Given the significant complexity of the TCJA and anticipated additional implementation guidance from the Internal Revenue Service, the remeasurement is considered provisional, and further implications of the TCJA may be identified in future periods.